A Closer Look at China's Economic Resilience
As the global economy slows, we remain optimistic about the long-term growth potential of Chinese equities. From a public health perspective, China has flattened its curve of new cases COVID-19. Fiscal and monetary stimulus, while incremental, remains supportive. Interest rates remain positive, giving China's central bank room to maneuver. Turning to the private sector, many innovative sectors within China continue to experience rapid growth. Reflecting both the health of China's economy and a faster resumption of daily activities, local sentiment has been more optimistic than global sentiment. In this roundtable, Matthews Asia portfolio managers Andrew Mattock, CFA, Winnie Chwang, Tiffany Hsiao, CFA, and Michael Oh, CFA, discuss their outlook for China and trends they are following.
Q. What was the initial impact of the global pandemic on China's markets?
Andrew Mattock: When the coronavirus emerged in China, Chinese equities experienced a brief market correction, following by a rapid rebound in stock prices. China was the first country to experience broad spread of the corona virus and the first to begin its economic recovery. Looking back to January, stocks fell as investors feared fallout from the virus. A longer than normal incubation period for the virus combined with the mass people movement associated with Chinese New Year complicated the control of the virus early on. Chinese authorities limited internal travel and controlled its borders while working with world health organizations to control the outbreak. In February, a slowdown in the percentage rise in new virus cases, along with comprehensive policy, action helped stabilize sentiment within Chinese markets, especially A-shares. In April, Chinese equity prices rebounded as the economy began to reopen. The pandemic accelerated some global trends but China was already ahead of the game in many respects. For example, many businesses globally are shifting to digital payments over cash to reduce virus transmission amid the pandemic. In China, cash has been virtually nonexistent for a while, with consumers across all income brackets paying for purchases via mobile phones and digital wallets.
Q. Year to date, both U.S. and Chinese equity markets have shown considerable resilience. What accounts for the relative strength of Chinese equity prices?
Winnie Chwang: Over the past decade, China's equity markets have undergone a significant transformation, deepening and expanding. Consider the example of the health care sector. There was a time when we could only invest in a handful of health care product distributors. Now we can invest in a broad range of different types of health care companies. Increasingly, innovative drug makers, contract research organizations (CROs) and high-end medical equipment manufacturers and suppliers are also represented in our investment opportunity set. As China's economy has changed and evolved, we find the quality of earnings streams coming out of publicly listed company improving. We also find that sentiment towards Chinese equity is generally more positive because business activity has resumed more quickly in China than in other parts of the world.